It may very well be an odd choice, since I am new to all this ;) We are in the accumulation stage so I was thinking that getting the lower yet more reliable/predictable returns would be the way to go. Do you recommend putting money into stocks funds i.e VTSAX (we both max out our 401k's) and then once we hit our goal and are ready to retire we move out of the stock funds into dividend funds? Really appreciate your input!!
First, it makes more sense to want "lower yet more reliable/predictable returns" in retirement than it does during the accumulation stage. When you're working, your income stream means that reliable/predictable returns from your investments are not necessary, and if they come at the cost of lower returns, then you'd be giving up something for not much in return (pun (?), uh, not intended?) When you're retired and your investments are providing your income, then reliable/predictable returns might be more comforting, though the research that led to the
the 4% Safe Withdrawal Rate already takes broad stock market volatility into account and requires no special dividend-focus to work.
Second, there's no clear evidence that dividend-focused funds actually produce more reliable/predictable returns than dividend-agnostic funds. It sounds like a reasonable theory on the surface, but when you understand that a dividend payment causes the share-price to get chopped down, you'll see that dividends themselves don't add any reliability to total returns.
Here is a chart showing the jaggedness of the returns in 5 of Vanguard's dividend-focused funds compared to VTSAX (and to VTBLX, Vanguard's Total Bond Market Index, to show what "lower yet more reliable/predictable returns"
actually look like). Good luck finding which one is VTSAX amongst all the similar squiggles!
The only way to get reliable, predictable returns in the stock market is to pick companies that you know will provide reliable and predictable returns, and that's really hard to do. Investing in bond funds is a much better way to add that stability to your returns.
So yeah, in my opinion, a total-market fund like VTSAX is a better choice in almost all cases. And while a dividend-focus makes a bit more sense in the retirement stage than the accumulation stage (since the drag of dividend taxation is more acceptable then), even during the retirement stage, VTSAX will serve you just as well if not better. Note that VTSAX's 1.84% dividend yield isn't much different than that from 3 of the 5 dividend-focused funds, so you'll still get dividends, for better or worse. But since it doesn't try to exclude the stocks that choose methods other than dividends to return value to shareholders, you'll also get lower expenses and much better diversification.
